Foamix files for Wall Street IPO

The company is developing foam-based drugs for treating skin diseases.

Israeli company Foamix Pharmaceuticals, which is developing foam-based drugs for treating skin diseases, has published a draft prospectus for raising up to $75 million on Wall Street. The company value for the offering has not yet been set, but is expected to be in the $100-200 million range, after money. Investment banks Oppenheimer and Maxim are leading the offering.

Foamix was founded in 2003 by CEO Dov Tamarkin and chairman and COO Meir Eini, both of whom previously founded medical equipment companies. Tamarkin also served as senior VP for R&D at Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). Each of them owns 21% of Foamix.

Over the decade since Foamix was founded, it has been financed by private investors, whose identities are now emerging. An investment company owned by Eri Steimatzky, former owner of the Steimatzky bookstore chain, owns 12.1% of Foamix. Among other things, Steimatzky is an angel investor in technology companies, and his successes in this area include auto safety products company Mobileye(NYSE: MBLY), which last week completed its IPO on the New York Stock Exchange (NYSE), and instant messaging company Mirabilis, sold to America Online in 1998.

Another Foamix shareholder (9.4%) is businessman Benny Shabtai, who earned hundreds of millions of dollars on the sale of Internet company Viber early this year. Shabtai started out as a security guard in the Israeli embassy in France, and over the years became a wealthy man, earning his primary capital from the sale of luxury Raymond Weil watches. He was the president and owner of the US branch of the brand, and later branched off into real estate deals, industry, and technology.

Foamix combines its unique foam technology with existing drugs in order to develop new versions of these products that can be spread on the skin as foam. It also develops independent products; two of its leading products are an antibiotic foam for treating acne and an antibiotic foam for treatment of a skin disease called Impetigo. The company also has agreements with pharmaceutical companies that use its foam as part of the products they are developing on the basis of existing or new drugs. The company has derived $14.1 million in revenue to date from these agreements in advances and milestone payments, while its products have been making progress in trials. None of its products, however, has reached the market yet.

The company's revenue from milestone payments has mostly been very volatile. The company posted $2 million in revenue in the first half of 2014, compared with only $290,000 in the corresponding period in 2013. It posted a $3.4 million loss in the first half of the year, compared with a $1.7 million loss in the same period last year.

The product for treatment of medium-to-severe acne (currently treated by orally administered antibiotics) completed a trial in 2013, and was found to reduce the amount of acne by 70%. No comparison to its competitors was conducted, but the company says that the antiobiotics reduce the condition by only 44%, and also have side affects. Foamix believes that it will begin fast track Phase III trials in 2015.

The company stated in its prospectus that this product could become the leading treatment in the market for severe acne. Other market sources claim that there is already an antibiotic foam on the market used to treat acne. Among others, (Perrigo Company (NYSE:PRGO; TASE:PRGO) has such a product, although the usual treatment is still orally administered pills, so the company can expect competition. The product for treating Impetigo, a pediatric skin disease, achieved total remission in all patients within two weeks, while the competing product achieved 81% success. This product is also slated to enter Phase III trials toward the end of 2015.

Foamix's foam technology is unique and patent protected, but other companies are producing their own foam, and can combine it with the same drugs. At the end of the first half of 2014, Foamix had $10.5 million in the bank.

Will the offerings window of opportunity remain open?

The first half of 2014 was a very volatile time for biomedical offerings on Wall Street, which included a number of Israeli companies. 22 offerings were held on Nasdaq by biomedical companies in July alone, including two Israeli companies, mostly at company values in the $150-250 million range.

The current season of Israeli IPOs was closed in confusion by VBL Therapeutics(Nasdaq:VBLX), whose IPO was retroactively canceled after only four days of trading because a leading investor did not put up the money for the IPO. This was an extremely rare event on Wall Street that had not been seen in a decade.

The market is now taking a breather, but will return in September, when the IPO wave is expected to resume with Foamix, ReWalk, and Silenseed (which has already submitted a public draft prospectus), as well as NeuroDerm, PolyPid, and Mapi Pharma, which has already tried its luck twice in the current session, and may try again at a reduced value. Meanwhile, the biomedical sector has become more volatile, and many IPOs, not just Israeli ones, are producing negative returns.